A nexus between fiscal policy and inflation: a case study of Indonesia using SVAR model

Basconcillo, Julie Ann Q.

doi:10.3326/pse.47.4.5.

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A nexus between fiscal policy and inflation: a case study of Indonesia using SVAR model

Julie Ann Q. Basconcillo

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https://doi.org/10.3326/pse.47.4.5

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Table A1
Data definitions and sources^a

Variable	Definition	Source
Central government expenditures (CG)	Central government expenditures	Ministry of Finance’s State Revenue and Expenditure Budget (Anggaran Pendapatan dan Belanja Negara or APBN)
Government consumption (GC)	Central government expenditures on employee compensation and use of goods and services
Social protection (SP)	Central government spending on social benefits in the form of transfers of money, goods or services
Subsidy (SUB)	Central government spending on energy and non-energy items
Exchange rate (ER)	Bilateral nominal rupiah per US$ exchange rate	Bank Indonesia’s Indonesian Economic Financial Statistics (Statistik Ekonomi dan Keuangan Indonesia or SEKI)
Debt-to-GDP ratio (DEBT)	Ratio of central government debt to nominal GDP	Indonesian Public Sector Debt Statistics (Statistik Utang Sektor Publik Indonesia)
Output gap (GAP)	Difference between log of real GDP and log of potential GDP	Indonesian Bureau of Statistics (Badan Pusat Statistik or BPS)
IPI gap	Difference between log of the real and log of potential total production of large and medium non-oil manufacturing establishments
Tax (TAX)	Ratio of tax revenue to nominal GDP	Government Financial Statistics
Inflation rate (INF)	First difference of logarithm of the consumer price index: all itemsb	Federal Reserve Bank of St. Louis
GDP deflator	First difference of logarithm of the GDP deflator index: all itemsb	Federal Reserve Bank of St. Louis
Interest rate (INT)	Short-term interest rate based on the BI 7-Day Reverse Repo Rate	Bank Indonesia’s Indonesian Economic Financial Statistics (SEKI)
Investment lending rate	Investment lending rates of the reporting banks’ branches located in Indonesia
Private consumption (PC)	Household consumption expenditures	Indonesian Bureau of Statistics (BPS)

^aAll data series cover the period from 2001:Q1 – 2022:Q4 except for debt ratio and social protection which only started in 2003:Q1 and 2005:Q1, respectively. Some fiscal data covering the period 2017:Q1 – 2022:Q4 are collected from the APBN Kita monthly reports of the Ministry of Finance.

^bThis definition of inflation rate is the one used for SVAR modeling. The ones shown in the descriptive statistics and graph refer to the published inflation rates.

Table A3
Unit root tests

Variable	ADF t-statistic				KPSS (LM-Stat)						Status
	Ho: series has unit root				Ho: series is stationary
	Intercept only		Intercept with Trend		Intercept only			Intercept with Trend
Log Central government	-0.732 (2)		-4.878 (1)	***	1.112	***	0.058			TS
Log Government consumption	-1.551 (1)		-2.725 (1)		1.162	***	0.249		***
D(Log Government consumption)	-9.709 (1)	***	-9.767 (1)	***	0.185		0.113			I(1)
Log Subsidy	-5.169 (1)	***	-5.270(1)	***	0.186		0.167		**	I(0)
Log Social protection	-20.745 (0)	***	-20.931 (0)	***	0.512	**	0.119			I(0)
As Percent of GDP
Central government/GDP	-3.850 (1)	***	-4.315 (1)	***	0.830	***	0.117			I(0)
Government consumption/GDP	-2.760 (1)	*	-5.712 (0)	***	1.080	***	0.186		**
D(Government consumption/GDP)	-14.342	***	-14.316	***	0.095		0.081			I(1)
Subsidy/GDP	-6.788 (1)	***	-12.153 (0)	***	0.862	***	0.069			I(0)
Social protection/GDP	-4.859 (0)	***	-5.023 (0)	***	0.219		0.147		**	I(0)
Debt ratio	-1.678 (1)		-1.248 (1)		0.356	*	0.301		***
D(Debt ratio)	-5.817 (0)	***	-7.017 (0)	***	0.825	***	0.071			I(1)
Tax ratio	-1.979 (2)		-6.659 (0)	***	1.179	***	0.063			TS
Log Exchange rate	-0.554 (0)		-2.915 (0)		0.995	***	0.208		**
D(Log Exchange rate)	-11.315 (0)	***	-11.570	***	0.185		0.056			I(1)
Inflation rate	-6.709 (0)	***	-8.060 (0)	***	0.963	***	0.042			I(0)
Interest rate	-3.967 (2)	***	-5.137 (1)	***	1.029	***	0.124		*	TS
Output gap	-4.051 (0)	***	-4.023 (0)	**	0.038		0.038			I(0)
GDP growth	-3.79 (0)	***	-3.94 (0)	**	0.31		0.15		**	I(0)
Log Private consumption	-1.026 (0)		-0.937 (0)		1.202	***	0.184		**
D(Log Private Consumption)	-9.988 (0)	***	-10.046 (0)	***	0.239		0.149		**	I(1)
Private Consumption/GDP	-1.101 (0)		-1.585 (0)		1.066	***	0.263		***
D(Private Consumption/GDP	-8.775 (0)	***	-8.782 (0)	***	0.144		0.097			I(1)
IPI gap	-5.603 (0)	***	-5.570 (0)	***	0.039		0.039			I(0)
GDP deflator	-4.023 (1)	***	-7.403 (0)	***	0.659	**	0.103			I(0)
Lending rate	-1.501 (1)		-4.425 (1)	***	1.115	***	0.122		*	TS

***, ** and * denote 1%, 5% and 10% significance levels of null hypothesis rejection, respectively. Values inside parentheses refer to lag lengths based on Schwarz Information Criterion. The KPSS output only provides the asymptotic critical values. TS stands for trend-stationarity.

Table A4
Test for structural breaks

Variable	Break Date		Deterministic Component	Status
Log Central government			Constant + Trend	Level
Log Government consumption			Constant	FD
Log Subsidy	2008Q2	*	Constant	Level
Log Subsidy	2015Q2	*	Constant
Log Social protection			Constant	Level
As Percent of GDP
Central government/GDP	2009Q2	*	Constant	Level
Government consumption/GDP			Constant	FD
Subsidy/GDP	2015Q2	*	Constant	Level
Social protection/GDP			Constant	Level
Exchange rate			Constant	FD
Tax	2008Q3		Constant + Trend	Level
Debt	2011Q4	*	Constant	FD
Output gap	2019Q4		Constant	Level
Inflation rate	2008Q3	*	Constant	Level
Interest rate	2005Q2		Constant + Trend	Level
Interest rate	2013Q3	*	Constant + Trend	Level
Log Private consumption			Constant	FD
Private consumption/GDP			Constant	FD
IPI gap	2019Q4		Constant	Level
GDP deflator	2008Q3	*	Constant	Level
Lending rate	2014Q1	*	Constant + Trend	Level

Bai-Perron multiple breakpoint tests used F-statistic. * denotes that the statistic is significant at the 5% level. FD stands for first-difference.

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